Corn estimates drop amid deepening drought

ST. LOUIS (AP) — A deepening drought in the nation's farm states has cut further into this fall's harvest, with farmers now expected to pull from their fields the lowest corn yield in more than a decade.

But American farmers are still expected to produce their eighth-largest harvest ever, and while there's sure to be a rise in prices at the grocery stores, there's little risk of a failed harvest that would lead to shortages on the shelves.

The U.S. Agriculture Department predicted the nation's biggest harvest ever in the spring, when farmers planted 96.4 million acres of corn — the most since 1937. But it cut its estimate a month ago and again Friday, saying it now expects the nation to produce 10.8 billion bushels, the least since 2006.

If that estimate holds, the federal government says it will be enough to meet the world's needs and ensure there are no shortages. But experts say food prices will almost certainly climb as corn is a widely used ingredient found in everything from cosmetics to cereal, colas and candy bars.

The drought stretching across the U.S. from Ohio west to California is deepest in the middle of the country, and major farm states like Iowa and Illinois are seeing conditions get worse each week. Farmers credit advances in seed technology that have produced hardier, more drought-tolerant corn for any harvest at all.

"I have to be honest with you, I'm totally stunned we have corn with green stalks and leaves after going through weeks of 105-degree temperature," said Garry Niemeyer, the National Corn Growers Associated president who has 1,200 acres of corn and 800 acres of soybeans near Auburn, Ill. "Our corn yield normally would be about 190 bushels per acre. This year, if I get 110, I'd be thrilled to death."

The USDA's latest estimate predicts corn farmers will average 123.4 bushels per acre, down 24 bushels from last year in what would be the lowest average yield in 17 years. But the yield would still be as good as nearly a decade ago, when the average was about 129 bushels in a year without drought.

Agriculture Secretary Tom Vilsack trumpeted the resilience of U.S. farmers and ranchers on Friday, saying he didn't expect immediate increases in food prices and was optimistic the U.S. would continue meeting global demand for grain. The U.S. is the world's top exporter of corn, soybeans and wheat.

"Americans shouldn't see immediate increases in food prices due to the drought," Vilsack said during a trip to drought-stricken Nebraska. "What is important going forward is that we continue to do all we can to help the farmers, ranchers, small businesses and communities being impacted by this drought."

But experts have already been predicting increases in food prices. Rick Whitacre, a professor of agricultural economics at Illinois State University, said he believes the greatest impact will be in meat and poultry prices, given that many ranchers have sold off livestock as pastures dry up and feed costs rise.

The selloff will result in lower prices through December with a glut of meat on the market — but higher costs beginning next year. Whitacre predicted an eventual 4 to 6 percent increase in the cost of pork and beef.

"You're going to see the ripple of this go out for quite a distance," he said.

The effect on packaged goods and other products is harder to predict because the price of corn may be only a small part of the total cost. For example, even with today's high corn prices, a 12-ounce box of cornflakes would have only about 8 cents worth of corn, said Paul Bertels, vice president of production and utilization at the National Corn Growers Association. That's a very small portion of the $4 or so consumers might pay for that box of cereal.

Dennis Conley, an agricultural economist in University of Nebraska's Institute of Agriculture and Natural Resources, said he expected to see nominally higher prices in U.S. supermarkets, although when "is the million-dollar question." He thought it might be a month or two before products using corn as an ingredient cost more.

Corn prices have already been going up with steady reports of worsening drought and crop damage, jumping from just under $6 a bushel in late June to over $8 a bushel in early August. There was little immediate effect from Friday's report, perhaps because the commodities sector expected the bad news.

"There was nothing really surprising. We've already had some private analysts suggesting the crop could be that low," said Mark Schultz, chief analyst at Northstar Commodity in Minneapolis. "In another two weeks there will be people picking corn in Indiana, Illinois, Iowa. So we'll start getting an idea of what these yields truly are."